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Wed 18 Nov 2015 02:07 PM

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Dubai office market set to see slowdown over next year

Cluttons says commercial property sector is showing signs of stabilising after period of strong growth

Dubai office market set to see slowdown over next year

Following a period of strong growth, Dubai’s office market is showing signs of stabilising, with average rents remaining virtually unchanged across all the city’s major submarkets and free zones, according to Cluttons. 

Its Winter 2015/16 Dubai Commercial Market Outlook report said that overall, prime, secondary and tertiary office rents have remained unchanged for the first three quarters of 2015, with the market remaining fragmented. 

Cluttons said it expects occupier activity to continue to slow, with office space requirements shrinking during next 12 months.

Steven Morgan, CEO of Cluttons Middle East, said: “Occupier activity is down, however a positive sign remains in the diversity of the market, which is reflective of the overall economic activity.

"Banks, financial institutions, law firms, construction companies and technology-media-telecoms firms round off the list of the most active occupier groups, with the city’s free zones remaining the primary target.”

The upward creep in rates in some of Old Dubai’s office submarkets is also reflective of the performance of the wider economy and dominated by domestic occupiers, Cluttons said. 

Morgan added: “Although space requirements from this segment are undoubtedly lower than this time last year, the limited amount of new stock deliveries in these areas, coupled with a steady rate of requirements, is putting upward pressure on rents in some key locations and buildings. This is driving some migration to submarkets such as Business Bay.”

According to the report, the city’s free zones still tend to be dominated by multinational organisations, with take up activity intrinsically linked to business performance in their home markets.

Cluttons also highlighted moves by hydrocarbon based occupiers to consolidate office space as global headcounts are adjusted downwards.

Faisal Durrani, head of research at Cluttons, said: “Free zones across the city continue to review expansion plans in order to cater to the buoyant level of requirements, with schemes such as the Innovation Hub at Dubai Internet City expected to ease pressure on rents once completed in Q4 2017. New free zones are also seeing increased interest and activity, highlighting the important role free zones play." 

Despite this, Cluttons said it remains cautious on the short term outlook for Dubai’s commercial market. 

Durrani added: “With the outlook for global growth faltering, we expect occupier activity will continue to slow, with office space requirements shrinking during next 12 months. This comes at a time when land values in submarkets such as Business Bay are cooling and therefore improving the financial viability of some previously stalled projects, which are now seeing a resumption in construction activity.

"The ability of the market to absorb this new space is likely to dampen the speed at which the office market sees a resumption in rental value growth as there is a risk of supply inching ahead of demand, although a lot of this is likely to be in the Grade B category.”

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